Accounting exam 3

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What is an operating cycle?

The time required for the company to produce revenue

What is an accounts payable?

A short term liability that occurs when a company purchases goods and does not immediately pay with cash

True or false: current liabilities are always payable within one year

False

When is interest expense recorded?

In the Period in which we incur it, no the period we pay it

A corporation is owned by ?

It's shareholders (equity holders)

given a choice, most companies will prefer classifying liabilities as

noncurrent

Declaration of cash dividends reduces what?

retained earnings

capital lease

lessee buys an asset and borrows the money through a lease to pay for the asset

How should deferred revenue be classified on the balance sheet?

liability

What kind of account is a deferred revenue account?

liability

how does management prefer to classify debt liabilities?

long term liabilities

capital structure

mixture of

capital structure

mixture of liabilities and stockholders equity that the business uses

3 primary sources of long-term debt financing

notes, leases, bonds

common characteristics of bonds

secured or unsecure callable convertible

Essential characteristics of a liability

- Future sacrifice arises from a present obligation - Future sacrifice of an economic benefit is probable - The obligation results from a past event

line of credit

amount of credit extended to a borrower ex. signed agreement that they may borrow 100,000 at %6 annual interest rate whenever the company needs cash

financial statement where the deferred revenue account is found

balance sheet

current maturities of long term debt should be classifies as what?

current liabilities

Tax collected on sales is classified on what as what?

balance sheet as a liability

debt financing

borrowing money from creditors (liabilities)

equity financing

investments from stockholders

when should you credit notes payable when negotiating a line of credit

when receiving cash under the line of credit


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